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This paper investigates the efficiency of domestic and foreign banks in the Central American region during 2002-07. Using two main empirical approaches, Data Envelopment Analysis and Stochastic Frontier Analysis, the paper finds that foreign banks are not necessarily more efficient than their domestic counterparts. If anything, the regional banks that were acquired by global banks in a wave of acquisitions during 2005-07 can keep up with the local institutions. The efficiency of these acquired banks, however, is shown to have dropped during the acquisition year, recovering only slightly thereafter. Finally, it is important to account for the environment in which banks operate, as country-, sector- and firm-specific characteristics are found to have a considerable influence on bank efficiency.

Banks and banking --- Investments, Foreign --- Finance --- Finance. --- Funding --- Funds --- Economics --- Currency question --- Capital exports --- Capital imports --- FDI (Foreign direct investment) --- Foreign direct investment --- Foreign investment --- Foreign investments --- International investment --- Offshore investments --- Outward investments --- Capital movements --- Investments --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Financial institutions --- Money --- Banks and Banking --- Budgeting --- Production and Operations Management --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Macroeconomics: Production --- Taxation, Subsidies, and Revenues: Other Sources of Revenue --- Macroeconomics --- Budgeting & financial management --- Foreign banks --- Productivity --- Tax expenditures --- Banks and banking, Foreign --- Industrial productivity --- Budget --- El Salvador